Marketing Management in Geographically Remote Industrial Clusters

Implications for Business-to-Consumer Marketing

George Tesar, Jan Bodin

• Publisher: WSPC
• Year: 2012
• ISBN:
  9789814489829
• Topic: Business
• Subtopic: Information Management
• Index: Business

This book is the first to cover marketing management issues in geographically remote industrial clusters (GRICs). The phenomena of GRICs have increased in importance, especially in the Nordic countries, due to changes in industry structures as well as political ambitions. The practice of marketing and marketing management is not singular to industry clusters in Nordic countries. Remote areas in parts of the United States, South and Central America, and South East Asia exhibit similar tendencies.

The problems faced by many entrepreneurial managers managing start-up or even existing enterprises are complex and require an in-depth understanding not only of the problems themselves, but also of the contextual framework in which these problems need to be solved. This book contains original cases that cover issues like cluster formation, information gathering, marketing strategies and operations, and information-technology. Examples come from industries like textile & furniture, automobile, agro-machinery, food, wine, software, and management consulting.

Contents:

• • Introduction:
    • An Introduction to Geographically Remote Industrial Clusters
    • Formation and Growth of Geographically Remote Industrial Clusters
    • Smaller Manufacturing Enterprises in Geographically Remote Industrial Clusters
    • Business-to-Consumer Marketing Management
    • Marketing Management and Cluster Dynamics
    • Notes on Case Analysis
• Collected Cases:
  • Formation of Geographically Remote Industrial Clusters:
    • Instinctive Formation of an Industrial Cluster
    • Athelia — How Can an Old City Survive the Death of French Shipyards?
    • Closing the Distance between Two Furniture Clusters — Möbelriket in Lammhult and Tibro Interiör in Tibro
    • Social and Environmental Value-Based Cluster Development — The Dilemma of Wishing to Do Good by Selling Textile Goods
    • The Textile Firm ZEEL S.A. or the Never-Ending Story of Marketing as Levitt's “Cinderella”
    • Interactive Recycling — Service Innovation in a Green Cluster
  • Internal and External Information Needs of Geographically Remote Industrial Clusters:
    • Downturn for a Manufacturing Company in a Geographically Remote Industrial Cluster
    • Saab — A Case of Emergency
    • Connecting Strategy with Functional Practice in the Automobile Industry
    • Cluster Development and Marketing Challenges for a Regional Biorefinery Cluster
  • Marketing Management Operations and Strategies of Geographically Remote Industrial Clusters:
    • Sweet and Sound with Xylitol
    • Revitalizing Agro-Machinery Manufacturing in Tanzania — The Case of IEL
    • Skagenfood A/S in the Northern Jutland Seafood Cluster — Decisions to Develop the Business
    • Growth Challenges in Small Manufacturing Ventures from Emerging Economies — The Evidence from Moldova
    • Winery Startup within a Wine-Producing Cluster
    • Convergence and Differentiation in Regional Know-How — The Case of Central Otago Pinot Noir
  • Information Technology Issues and Geographically Remote Industrial Clusters:
    • Software Development in a Remote Geographic Location — The Case of TextFlow
    • National Computer Services, Inc. — Market Options for a Small Middle Eastern IT Company
    • Golf Goes Virtual with GOLFZON

Readership: Students studying marketing management, business professionals involved in managing industrial clusters, policy makers, government officials and economics and regional development specialists.

Chapter 1

An Introduction to Geographically
Remote Industrial Clusters

There are two types of industrial clusters that can be found among commercial activities today: industrial clusters that historically developed in many areas around the world, and more recently modern industrial clusters that were formed or initiated by entrepreneurial individuals. Most industrial clusters that evolved over time were based on an abundance of natural resources, concentration of knowledge, or uniqueness of the area. Examples can be found in mining ore or drilling for oil, transferring university research into industries such as electronics or biotechnology, and growing feed corn for livestock or conversion to ethanol. More recent industrial clusters formed or initiated by entrepreneurial action systematically sought some common dimensions, generally in remote areas, and their objective was to establish profitable enterprises, create jobs, and contribute to the economic and social stability of the area. Modern industrial clusters represent a new and innovative tool of management; and their formation, growth, strategies, and operations are emphasized in the content that is to follow.

Industrial Clusters

Geographically remote industrial clusters (GRICs) can be found in areas where industrial enterprises concentrate in order to produce goods or services or to perform complementary, supplementary, or support activities for other enterprises in or out of the cluster. GRICs tend to create conditions in which industrial enterprises coexist and grow symbiotically, in spite of many infrastructural challenges and frequently adverse environmental conditions. GRICs also evolved because local conditions were transformed into favorable market demand for special goods or services such as natural resources, forest products, or agricultural commodities.

Predisposed social, economic, or technological conditions for the eventual development of GRICs frequently may have existed for a long time, but GRICs are often the result of individual initiatives by professionals who returned to the area, or by others who had the abilities to foster local financial, physical, or human resources, and initiated cooperative efforts intended to create a series of commercial activities that resulted in an industrial cluster. Some of these clusters represent a complete value chain. In addition to the conditions described above, physical conditions such as extreme temperatures combined with seasonal area accessibility and a limited labor force may also bring locally concerned individuals together to facilitate the initiation of activities that create a favorable platform for a potential industrial cluster.

Recent perspectives offered by economic and regional development specialists concerning GRICs suggest that in addition to natural resources such as minerals, petroleum, forests, or even wind power which historically provided platforms for development, environmental conditions combined with land use suitable for harvesting resources such as fast-growing trees for paper, grapes to make wine, or corn to produce ethanol tend to stimulate the formation and development of GRICs. Some industrial cluster specialists also believe that knowledge generated at rural or regional universities provides an excellent platform for formation and growth of GRICs, because the historical underpinnings of each university represent unique core knowledge on which GRICs can be established.

There are many examples of modern GRICs that meet the new perspectives of economic and development specialists. Medical centers, automotive assembly facilities, hand-crafted furniture, or cultivation of fruit and vegetables are only a few examples. The economic and development specialists also point out that in all of these examples there is generally an individual who recognizes an opportunity, takes the initiative, and pursues the opportunity. Both academic and professional literature show, for example, that in ventures such as rural medical centers with a network of local providers of support services, subcontractors to oil drilling operations, or establishment of agricultural operations in areas where manual harvesting is required, there is an abundance of labor. These represent new approaches to GRIC development.

Unusual environmental conditions frequently provide platforms for creating GRICs. Environmentally adverse temperature climates at both extremes provide interesting opportunities for individuals with entrepreneurial abilities to create settings sought after by enterprises producing consumer goods. Product-testing facilities for automobiles and related products such as tires or batteries in northern Sweden or Alaska require an infrastructure of service facilities suitable for low-temperature climates. The opposite facilities are needed to test products in high-temperature climates in places such as Equatorial Africa. Due to recent climate changes, manufacturers of consumer products are even more interested in on- location environmental testing. These newly created opportunities for local entrepreneurs to develop suitable infrastructures and support networks may also lead to new GRICs.

In the past, a number of GRICs were formed because of singular conditions in which economic or technologically accessible natural resources facilitated their formation and growth. Recent socioeconomic and managerial perspectives indicate that GRICs are formed or initiated from singular ideas presented by individuals with missions and visions. These include establishing wind power farms, harvesting fish in coastal areas, or converting petroleum from shale deposits. Close cooperation with researchers and scientists at a rural university also presents opportunities for individuals to form unique GRICs. However, some managers view many of these perspectives and approaches as still relatively new and requiring a major shift in managerial thinking.

From a historical perspective, clusters are internationally pervasive. Early in the history of the United States, industrial clusters appeared in geographic areas where natural resources were readily available even if transportation access or local infrastructure had to be developed. New clusters offered employment opportunities and motivated the creation of population bases surrounding the clusters. Some examples of early industrial clusters in the United States include the establishment and growth of the steel industry around Pittsburgh in Pennsylvania and Gary in northern Indiana, glass manufacturing in upper New York State, and the early lumber industry in northern Michigan, Minnesota, and Wisconsin, all of which were based on access to vast natural resources. Similar examples of early clusters can be found in northern Sweden in Kiruna where iron ore is mined, around Lycksele where extensive forest harvesting operations are located, or in Skellefteå where large prefabricated wooden structures are produced. Additional examples include crude oil production in the Middle East, steel production in Argentina, and wool processing in New Zealand, among others.

From a historical point of view, many resource-based industrial clusters are transitory and temporal, and have a predictable life cycle. Their long-term stability is very much dependent on changes in economic and technological climates — changes in the economic climate that relate to long-term economic recessions or expansions, and changes that introduce long-term technological innovations. The combination of these changes has a negative impact on the stability of resource-based industrial clusters. Looking into the future, recent economic and technological changes and the predominant environmental conditions will have a dramatic impact on the future of resource-based industrial clusters.

Although researchers, academics, and public policy decision makers who are currently developing theoretical and conceptual foundations for GRICs are also reinterpreting the traditional definition of industrial clusters, including GRICs, differently, they agree that the concept of industrial clusters is not a new phenomenon. Developmental economists and regional planners have discussed the existence and future potential of industrial clusters, and more recently GRICs, for over the past 40 years. Researchers such as Michael Porter, Peter Drucker, and others have described the existence of industrial clusters extensively in their writings. For example, Porter (1998) mapped over 30 major clusters in the United States and offered insights into their birth, evolution, and decline. Kukalis (2010) pointed out that the evolution of clusters is a natural phenomenon and that some smaller enterprises naturally gravitate toward industrial clusters.

The notion that some industrial clusters evolve naturally while others are formed, or initiated, by some interested entity or by entrepreneurial action is important. Developmental economists interested in the historical evolution of industrial clusters reason that they tend to emerge over time in locations where the conditions are favorable from the perspective of natural resources, factors of labor, and know-how. Accordingly, it is a natural process that is nurtured and managed by industrial cluster participants. This is primarily because symbiotic relationships are forged within the industrial cluster over time. However, the more traditional perspectives presented by developmental economists tend to consider only the external and apparent dynamics of industrial clusters, and do not generally probe the internal managerial practices and strategies from the point of view of individual cluster members.

More recently, some regional planners and developers have introduced a new set of theories and conceptual frameworks in which they suggest that industrial clusters can be formed or initiated by interested private or public entities, or by entrepreneurs. This is particularly relevant to regions that appear to be somewhat remote from main administrative centers (capital cities) or major metropolitan areas (industrial centers). A number of universities in the United States and Europe are located in rural areas that could be characterized as geographically remote regions. Some regional planners and developers perceive some of these geographically remote regions as ideal platforms in which industrial clusters could be formed or initiated. A substantial number of them offer extensive plans and programs designed to stimulate formation of industrial clusters in geographically remote regions.

The Concept of Remoteness

The notion of remoteness is highly subjective. There is an ongoing discussion among rural economists, sociologists, and developmental specialists, including public policy decision makers, concerning the definition and interpretation of the concept of “remoteness.” The contemporary interpretation of remoteness suggests that there are several determinants or measures of remoteness. Typically, remoteness is defined by linking it to the notion of geographic distances by many economists, sociologists, and even development specialists; however, some of them propose that in addition to the notion of a geographic distance, there are also social and psychological (psychic) determinants or measures of remoteness.

These additional definitions point out, along with the geographic notion of remoteness, that enterprise managers may perceive remoteness in various ways. In geographic terms, remoteness, or a remote location, may be too far for a manager living in the center of a large metropolitan city. Conversely, a manager living in a rural part of the country may perceive a certain distance, let us say 100 kilometers, as a nearby location.

Social remoteness is perceived in terms of social distance between social classes or social groups that are dominant in specified geographic areas or regions. A group of individuals living in rural areas dependent on occasional employment opportunities and preoccupied with activities that provide day-to-day livelihood may represent substantial social remoteness for a manager who is attempting to build an assembly plant in a socially stable location. The concept of social remoteness may exist between neighborhoods of a large city as much as across populated areas or regions. The extent of social remoteness is defined by individuals and is based on their social backgrounds and experiences. The concept of social remoteness became important in the 1980s and early 1990s in locating automotive assembly plants in various emerging markets in Asia, Europe, and the United States; it was particularly highlighted by early experiences of Japanese and European automobile manufacturers in the southern parts of the United States and later in Central and Eastern Europe.

The concept of psychological remoteness is even more complex. The notion of psychological remoteness is based on attitudinal, perceptual, and preferential behavioral factors of individuals. From an attitudinal standpoint of an enterprise manager, psychological determination of remoteness may exist between two locations that are equidistant, in geographically measurable terms, but one location is perceived as being farther away because of its unfavorable surrounding or older industrial infrastructure. The notion of psychological or psychic distance is based on the nature of individuals’ psychological filters that are built around educational background, upbringing, or psychological conditioning. What individual managers perceive is unique. Preferential psychological or psychic remoteness can be partly explained in the following way: Because of their unique filtering mechanism, each manager develops his or her own portfolio of preferences which is factored into the manager’s decision-making process. For example, a manager who attended a prestigious university in a well-established academic community may be reluctant to participate in the formation of an industrial cluster around a second-tier state university in a rural community far away from an administrative center and a major city.

Geographic remoteness is also important in marketing management, not only for opportunity and market assessment but also for decisions concerning logistical support. Geographic distances between markets may be very short, but they may be very long from the perspectives of marketing managers and consumers because of ethnic, cultural, or other differences.

Regions in South America are separated by distinct landmarks such as valleys, rivers, and forests. Each valley, river bank, or part of a forest may have a totally different cultural make-up with virtually no direct social or economic interactions between them. Both the social and psychological distances between them are significant.

Similar conditions exist in parts of Central and Eastern Europe, where ethnically or culturally homogeneous groups perceive substantial differences between themselves and the other groups. These perceptions of social and psychological distances also lead to their own definitions of geographic remoteness. The social and cultural interpretations of differences between agriculture and industry — or more specifically between agricultural and industrial land where there are large concentrations of heavy industry (e.g., steel mills in the center of agricultural land farmed by small local farmers, such as is the case around Košice in Slovakia or Katowice in Poland) — are perceived by both sides as a form of remoteness. Other countries in Europe also perceive social or psychological separation concerning the notion of remoteness; for example, when Swedes from southern Sweden point out that life in northern Sweden is substantially different, this may also be interpreted as social or psychological remoteness.

In large metropolitan areas in North America, the notion of remoteness takes on an even more complex dimension. Individuals who live in New York, Los Angeles, or Toronto and leave their cities tend to feel that they have ventured into geographically remote areas. Although the actual distances from the cities are relatively short, measured in kilometers or miles, the individuals from the cities nevertheless believe that the distances are significant in social or psychological terms.

All three notions of remoteness — geographic, social, and psychological — are important information for the initiation of GRICs. The notion of geographic remoteness is perhaps the most important; nevertheless, remote areas or regions may also have social and psychological dimensions which, from a managerial perspective, may be rational and may be used in managerial decision making. Geographic remoteness, measured in specific terms such as kilometers or miles, may also be highly subjective for many managers.

Formation of Industrial Clusters

As mentioned previously, there are two fundamental views in the literature describing how industrial clusters form. The traditional view represents a theoretical and conceptual framework that industrial clusters evolved naturally because of local conditions and some concentration of entrepreneurial drive. At a given point in time, the local conditions represented the optimal combination of physical, financial, and human resources that were activated by some arbitrary entrepreneurial initiative. Accordingly, such entrepreneurial initiative created the core set of activities which, in turn, stimulated infrastructural growth and facilitated the process of bringing a core set of activities profitably into the marketplace. Examples can be found in mining, forestry, automobile manufacturing, and steel making worldwide. In the literature, this view is known as the historical approach to the development of industrial clusters.

According to several recent studies conducted in Europe and in the United States, traditional industrial clusters initially formed around a combination of natural resources. The resources typically were located in rural areas, but their economic value was high enough to attract development of the necessary infrastructure and labor to harvest the resources. Coal mining, steel making, forest harvesting, and even agriculture initially stimulated the growth of clusters. As industrialization progressed and manufacturing processes evolved on a large scale, some industrial and commercial goods required larger facilities where suitable infrastructural components such as roads or railways could be built to deliver the goods to markets. Automotive manufacturing, steel fabrication, and rubber manufacturing historically clustered in relatively rural areas. Later, when markets expanded and consumers demanded better services from manufacturers, a need for infrastructural intermediaries emerged. Railroad centers, warehousing facilities, and distribution facilities had to be built in strategic areas to better serve consumers. Many of these infrastructural intermediaries were also located in rural areas to serve manufacturing and transportation interests.

Traditional industrial clusters also emerged because the core idea for the industrial cluster required safe environmental conditions with vast open spaces. The small aircraft industry that developed around Wichita, Kansas, is an excellent example. The small aircraft industry needed an airport and space to test their planes. In the middle of the previous century, the emerging space industry required similar conditions. Other examples from the industrial histories of Europe, the United States, and other parts of the world also illustrate this phenomenon.

The accumulation of knowledge, scientific and managerial, has also provided platforms on which very successful industrial clusters were formed. In the United States, for example, universities such as the University of Wisconsin-Madison initiated an internationally known industrial cluster in biote...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Dedication
• Preface
• Contents
• Case Contributors
• Introduction
• Chapter 1 An Introduction to Geographically Remote Industrial Clusters
• Chapter 2 Formation and Growth of Geographically Remote Industrial Clusters
• Chapter 3 Smaller Manufacturing Enterprises in Geographically Remote Industrial Clusters
• Chapter 4 Business-to-Consumer Marketing Management
• Chapter 5 Marketing Management and Cluster Dynamics
• Chapter 6 Notes on Case Analysis
• COLLECTED CASES
• Part I Formation of Geographically Remote Industrial Clusters
• Case 1 Instinctive Formation of an Industrial Cluster
• Case 2 Athelia — How Can an Old City Survive the Death of French Shipyards?
• Case 3 Closing the Distance between Two Furniture Clusters — Möbelriket in Lammhult and Tibro Interiör in Tibro
• Case 4 Social and Environmental Value-Based Cluster Development—The Dilemma of Wishing to Do Good by Selling Textile Goods
• Case 5 The Textile Firm ZEEL S.A. or the Never-Ending Story of Marketing as Levitt’s “Cinderella”
• Case 6 Interactive Recycling—Service Innovation in a Green Cluster
• Part II Internal and External Information Needs of Geographically Remote Industrial Clusters
• Case 7 Downturn for a Manufacturing Company in a Geographically Remote Industrial Cluster
• Case 8 Saab—A Case of Emergency
• Case 9 Connecting Strategy with Functional Practice in the Automobile Industry
• Case 10 Cluster Development and Marketing Challenges for a Regional Biorefinery Cluster
• Part III MarketingManagement Operations and Strategies of Geographically Remote Industrial Clusters
• Case 11 Sweet and Sound with Xylitol
• Case 12 Revitalizing Agro-Machinery Manufacturing in Tanzania—The Case of IEL
• Case 13 Skagenfood A/S in the Northern Jutland Seafood Cluster—Decisions to Develop the Business
• Case 14 Growth Challenges in Small Manufacturing Ventures from Emerging Economies—The Evidence from Moldova
• Case 15 Winery Startup within aWine-Producing Cluster
• Case 16 Convergence and Differentiation in Regional Know-How—The Case of Central Otago Pinot Noir
• Part IV Information Technology Issues and Geographically Remote Industrial Clusters
• Case 17 Software Development in a Remote Geographic Location—The Case of TextFlow
• Case 18 National Computer Services, Inc.—Market Options for a Small Middle Eastern IT Company
• Case 19 Golf Goes Virtual with GOLFZON
• Selected Bibliography
• Index